Protest was made by Delta by letter of July 1, 1975, to the special representative and hearings were held on September 25 and 26, 1975. While the matter remained pending, the Guatemalan earthquake occurred, and Delta participated generously in the relief effort. Subsequently, Delta reached an agreement with the Guatemalan national carrier, which provided for equitable participation in the trade by all interested U.S. carriers. When this occurred, the proceedings became moot and Delta so advised the special trade representative and FMC. Unfortunately, Sea-Land intervened with unacceptable demands and the Guatemalan Government reimposed its restrictions. I am attaching hereto, as exhibit "B", pages 1-6 of the notice of proposed rulemaking which ultimately was issued by the Federal Maritime Commission during June 1977. This proceeding, docket 77-22, outlines what had occurred to that date. We can only add that the proceeding is still pending, no rules have been implemented and Delta suffers substantial discrimination in this trade. We believe that it will be appreciated, from this submission, why we do not consider that the primary protection of our trades can come from unenforced threats by the Federal Maritime Commission or diplomatic negotiations by the Department of State, while our government authorities are required to do "all things for all people," including third-flag lines. On the contrary, we urge to the committee that the carriers be given greater freedom to effectively negotiate commercial solutions, with the ability to put their agreements into effect on a prompt and realistic basis. We do acknowledge the good intentions and assistance of FMC and Department of State officials, and consider the use of Title III, Trade Act of 1974, a particularly effective means of countering discrimination in developing nations which enjoy GSP.

NEUTRAL BODIES

We do not believe that either neutral bodies or an increase of staff investigators for the FMC will have any effect upon the rebating problem.

Both neutral bodies and staff investigators have been around for a long time; neither of them have been effective in exposing sophisticated rebating practices. At most, they can be expected to bring to light instances such as where a carrier's clerk, through error or inadvertence, charges the wrong rate, or the carrier or shipper question a cargo measurement as to accuracy: These are not the problems with which this committee is dealing.

The Sea-Land disclosures of "off-book" payment of rebates, apparent use of Swiss bank accounts, etc., is not something which is likely to be discovered by the use of these investigative bodies; all that would be needed would be for the dedicated rebater to refine the devices by which payments were made. The neutral body/increased FMC investigative staff considerations, accordingly, are blind alleys. They are resources which have been used without developing desired results and cannot be looked upon as being effective devices here.

THE SOLUTION TO THE REBATING PROBLEM

We have created, through legislation, impediments to the commercial operations of our carriers. The weakening of the conferences has made those bodies debating societies which are of little value in meeting competition from a carrier engaged in rebating. The evermore difficult and time-consuming problem of obtaining approval by the FMC of section 15 agreements negotiated between carriers has effectively precluded the flexibility needed to permit us to negotiate with our trading partners in a manner which would preserve for U.S.-flag carriers an ability to conclude commercial agreements which would preserve equitable participation in our trades.

It is submitted that the problem of rebating is manifold and requires a number of steps to bring about its resolution, including the following:

(1) The authority of the FMC should be strengthened by the anti-rebating provisions of H.R. 9518, (without amnesty), amended as suggested in my exhibit "A".

(2) We need to facilitate the effectuation of pooling, equal access and rationalization agreements, with prompt implementation on an interim basis, pending any required hearing, i.e., Pendente Lite.

(3) We need to authorize closed conferences by which we can limit overtonnaging in our trades; we need to strengthen our conferences in order that they

will be less subject to the invasion of our trades by outside carriers seeking to dump tonnage.

(4) We need an effective "third flag" bill.

These measures would provide the means and incentives to resolve rebating problems in the only really effective manner in which this can be accomplished, by seeking equitable commercial solutions within the law.

STATEMENT OF CAPTAIN J. W. CLARK, PRESIDENT, DELTA STEAMSHIP LINES, INC., NEW ORLEANS, La.

My name is J. W. Clark. I am president of Delta Steamship Lines, Inc. of New Orleans. I initially wish to express our appreciation and support, in principle, of the objectives sought by Mr. Murphy in presenting this bill, H.R. 9518. The necessity to take effective measures to assure compliance with our shipping laws and regulations by all carriers participating in U.S. foreign commerce is immediate and obvious.

I find it difficult to believe that many major liner operators have engaged in widespread malpractices such as rebating, although I do recognize that U.S.-flag carriers are extremely vulnerable to the actions of some unscrupulous foreign carriers which are beyond the effective reach of our laws. There exists, in practice, a manifestly unfair situation under which U.S. lines are subject to strict controls which cannot be practicably applied to their foreign counterparts. Referring to the proposed discovery provisions and the requirement that foreign carriers produce documents, records, and other information on the request of the Federal Maritime Commission, the bill deals with a very real and wholly inequitable problem in our foreign commerce. This, of course, is due to the fact that U.S.-flag carriers can be subjected to full production requirements while foreign flag lines, for all practical purposes, are substantially exempted. As Senator Inouye has recognized, this precludes anything in the manner of even-handed regulation by the FMC and often makes our regulatory activities the laughingstock of the international shipping community. It is an inequity which must be corrected but, frankly, I do not believe that H.R. 9518 will accomplish this unless the bill is modified.

As has been demonstrated in the past, when attempts are made to impose document or other informational production requirements on foreign flag lines, they can seek shelter by urging their respective governments to issue decrees or resolutions which serve to prohibit the production of their records abroad. The resulting stalemate effectively shields an offending foreign flag operator. A nation-to-nation confrontation becomes so difficult that, at best, some form of belated, token and meaningless production is effected. No purpose is served and the United States loses the goodwill of its trading partners, as well as considerable "loss of face" for its futile efforts. Obviously, the authority of the FMC must be strengthened.

This being the problem, I submit that the proposed closing of our ports to carriers failing to provide documents or other information requested will only magnify and escalate unfortunate and non-productive confrontations between our country and its trading partners. In addition to this, we must anticipate that massive retaliation in kind would ensue. The United States has no monopoly on the regulation of international commerce: Our trading partners have an abundance of laws and regulations on their side. We simply cannot "export" our stringent antitrust philosophy without reprisal. This aspect unquestionably influenced the conclusions and recommendations of the Alexander committee report, preliminary to the enactment of the 1916 Shipping Act. In short, it is my view that the port closure suggestion is something in the nature of a rusty blunderbuss which, if fired, is as likely to cause damage at one end as at the other. It is essential that we avoid the prospect of such a backfire which would injure both U.S. merchants and carriers.

A further problem which I must, at least, mention in passing is simply that there never will be any assurance that any documents or other information produced from abroad will be accurate. This is the simple result of the cold, practical fact that unless the individual attesting to the accuracy of the document or information is subject to prosecution for perjury, he is not subjected to the ultimate compulsive device which serves to guarantee the accuracy of his

responses. This is a problem which lacks a solution; I do not believe I am being unduly cynical in stating that it is a reality which is not going to change. If any parties abroad are going to violate the law initially by granting rebates, they certainly will have no compunctions about extending their dishonesty one step further and furnishing perjured affidavits with the knowledge that they can never be prosecuted since they will not be subject to the jurisdiction of our courts and justice system.

An alternative which I would like to suggest, which avoids the threat of nation-to-nation confrontations which the closing of our ports would provoke, is a procedure under which we might effectively regulate, internally, the actions by our own nationals (and nonnationals resident in our country) and, through them, the carriers they represent. This is simply to place the primary responsibility of effecting production, complete and accurate, on the U.S. general agents and subagents for foreign based carriers. Where production is not timely, or fully responsive, the FMC would be empowered and directed to notify each of the agents of the carriers involved that they were required to cease and desist any further activities in representation of the offending carriers. The cease and desist order, if violated, would then subject the corporate entities (as well as their officers and employees) to substantial civil sanctions.

This should not involve any government-to-government confrontations. It would be a matter of enforcing regulation of our statutes through our own residents, citizens and noncitizens, and precluding them from continuing in the representation of foreign carriers which either will not or cannot comply with our laws. Control of international shipping through regulation of port agents is not unique. Several nations have already established government-controlled ship agency companies which, by requirement of law, are utilized by all carriers calling at their ports, including U.S. liner companies. Since even this practice apparently has been accepted by the international shipping community, there should be no valid reason why a reasonable control of domestic agents-in the manner proposed here-should be unduly objectionable to foreign carriers or to their governments. Appended hereto as exhibit "A", is a suggested redraft for section 2(c) (2) (A) of the bill which would accomplish these purposes. It is obvious that if foreign flag agents are confronted with loss of representation here, they will do their utmost to convince their principals of the wisdom and desirability of effecting compliance.

Section 1 of the Shipping Act, 1916 (definitions) possibly should be broadened to clearly include foreign flag agents, shippers, consignors, consignees, and their officers, employees, and agents as persons subject to the act. The penalties provided for offending carriers should be equally applicable to all offenders ***. It "takes two to tango." It follows that other related sections of the act should be appropriately amended.

Referring now to the amnesty provisions of the bill, I regret that I must oppose these in the strongest possible terms.

Human nature being what it is, there will always be certain interests whose compliance with law will only be obtained by compulsion. where the application of personal, individual (as well as corporate) civil and/or criminal sanctions do not exist, the law will remain a meaningless exercise and its violation will be measured only by the ingenuity of those who seek to obtain the material advantage which their dishonesty produces. I am only stating my pragmatic conviction.

If, on the first substantial disclosure of such malpractices in any meaningful manner, it is concluded that amnesty is to be given to the violators, the effect will be to have eradicated the sanctions from the statutes. Obviously, any prospective violator will look to the precedent and could reasonably anticipate that, if caught, there would be a very real probability that it would receive amnesty and go unpunished for its law-breaking activities. This will tend to negate any other efforts which are made by the Congress and/or the FMC to attempt to obtain adherence to our laws.

There have been a number of statements attributed to the representatives of a major U.S.-flag line (after admitting its own guilt in committing long-term rebating practices) to the effect that it rebated because almost everybody does it. in an apparent attempt to rationalize its own illegal acts. This unethical (and inaccurate) tactic has unquestionably damaged the good reputation of the American merchant marine, i.e., guilt by association. Such statements are

nothing more nor less than shotgun smear tactics which are detrimental to all carriers and should be condemned in the strongest terms possible. Additionally, such statements are wholly destructive of any efforts which may be made to obtain compliance with our laws.

I would like to state to this committee, here and now, that Delta Steamship Lines, Inc., to the best of my knowledge and belief, has not, does not and will not engage in rebating. I believe that the same thing can be said for most of the responsible major U.S. and foreign flag carriers.

I am convinced that the vast majority of carriers do not engage in rebating. Responsible carriers (U.S. and foreign) do abide by the law and, I believe, constitute a majority of the carriers engaged in our foreign commerce.

All of this, in my view, only serves to reemphasize the negative effect which the amnesty provision of the bill would have on adherence to our laws in the future. Obviously, if honest and dishonest carriers are to be treated, in substance, on an equal basis, there is little if anything to compel or even recommend honesty in the future. If amnesty is granted once, it will be anticipated, despite any disavowals which this committee may make, as a probable course for the future.

Despite the publicity received by the rebating practices of a major U.S.-flag carrier, I cannot believe that its admitted transgressions are typical of the majority of U.S.-flag carriers. Where rebating is a practice, the honest carriers suffer through loss of business to the rebater since they cannot remain fully competitive. I hope that this committee will recognize these facts and strike from the bill, in their entirety, all amnesty provisions. If it does not, it will disadvantage-severely-the carriers who operate in an above-board and lawabiding manner.

Unfortunately, the settlement agreement recently worked out by a rebating carrier with the Federal Maritime Commission did not contain-as I believe it should have any positive requirement that the carrier proceed by suit to recover the rebates from all parties to whom they were paid. This, of course, would have removed, to the extent possible, any advantages obtained through the rebates and would have placed the rebater on an equal footing with its competitors.

Even without a specific requirement of such action in the FMC settlement agreement, it is my view (and probably was that of the FMC) that the guilty carrier as a matter of law-is obliged to take legal action-promptly and before time bars run-to recover the unlawful payments. If this has been done, it has not come to my attention and I would be quite surprised to find that I am so uninformed as to be unaware of litigation of this magnitude in our industry. On the contrary, from what I have been able to observe, the carrier in question is diligently pursuing a goal of preserving to the fullest extent possible all competitive advantages which it has gained, using wholly deplorable smear tactics to justify past illegal actions.

Delta has filed suit in New Orleans to obtain the records reflecting the rebates paid by such a carrier in the trades in which it is in direct competition with Delta. You will understand that this is not idle curiosity on our part, but a need to develop and evaluate the competitive harm which has been done to us in order that we may adequately defend ourselves in the future and adopt such corrective measures as are possible and necessary.

The carrier in question has taken the quite remarkable position-in this Delta suit that the records on its rebates are "trade secrets" and "private and confidential commercial and financial information". In short, it is apparently endeavoring to preserve under those guises the unlawful competitive advantage which it has obtained over Delta.

I do not wish to appear vindictive in any manner but, in the light of this continuing "cover-up", I cannot conceive that this committee would protect any line, its officers or representatives guilty of such actions, by granting amnesty in any form.

Before closing my testimony, I would like to recommend to this committee consideration of:

(a) Amending the Shipping Act. 1916, in such a manner as to strengthen the authority of the FMC to approve equal access, pooling, and rationalization agreements. Such agreements have worked effectively to eliminate, or at least minimize, malpractices in the Latin American trades. Provision should be made

for expeditious consideration of all such agreements to avoid costly and frustrating delays, with interim approval during any hearing processes. This would not be discriminatory, and would equally apply to agreements applicable to all our essential trade routes.

Recent reviews, including one conducted by the Department of State, conclusively demonstrate that, in trades where such carrier agreements exist, freight rate increases have been held substantially below the level of other trades, and a greater degree of rate and service stability has resulted.

(b) Consideration must be given to prompt enactment of legislation to blunt the steady encroachment of predatory state owned/controlled shipping cross trading on our essential U.S. foreign trade routes. Unless soon checked, this sinister, politically motivated intrusion in our foreign commerce will inevitably destroy liner operators engaged in usual commercial services on a private enterprise basis.

I submit that H.R. 9518 as presently written, does not meet and cannot diminish the very real threat of communist bloc shipping to our U.S.-flag shipping industry, a threat which could result in the domination of our essential trade routes by predatory alien shipping to the detriment of our entire foreign com

merce.

In closing, I would like to emphasize that these recommendations, compliance with discovery through regulation of domestic agents and encouragement of equal access, pooling, and rationalization agreements and effective controls for predatory state-owned foreign flag shipping, would provide effective solutions to critical problems confronting our U.S. maritime industry. Since malpractices, including rebating, and elimination of predatory rate-cutting, are commercial problems, the most effective cure lies in authorizing and encouraging to the maximum extent, commercial practices which will make such activity wholly unattractive to those who would circumvent our laws and policies.

STATEMENT OF CAPTAIN J. W. CLARK, PRESIDENT, DELTA STEAMSHIP LINES, INC., ACCOMPANIED BY E. S. BAGLEY, COUNSEL, DELTA STEAMSHIP LINES, INC.

Captain CLARK. Mr. Chairman, gentlemen, I am accompanied by Mr. E. S. Bagley of our general counsel's office in New Orleans.

Mr. CHAIRMAN, I have spent a considerable amount of time preparing this testimony, and I think it is about as concise as I can make it. If I attempt to paraphrase it or summarize it, I think I might leave something out.

The CHAIRMAN. Do not leave anything out and go ahead and give us your testimony.

Captain CLARK. Thank you, sir.

The CHAIRMAN. Captain Clark and I have been on panels before and participated in many indepth discussions of this industry and the problems in the industry, and we certainly know of his expertise. So please proceed.

I am president of Delta Steamship Lines, Inc. of New Orleans. I initially wish to express our appreciation and support, in principle, of the objectives sought by Mr. Murphy in presenting this bill, H.R. 9518. The necessity to take effective measures to assure compliance with our shipping laws and regulations by all carriers participating in U. S. foreign commerce is immediate and obvious.

I find it difficult to believe that many major liner operators have engaged in widespread malpractices, such as rebating, although I do recognize that U.S.-flag carriers are extremely vulnerable to the actions of some unscrupulous foreign carriers which are beyond the effective reach of our laws. There exists in practice, a manifestly